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Monday, 12 November 2012

Resistance at Broken Support

I'll start today by looking at a couple of possible H&S patterns that may currently be playing out. Both are decent and technically valid patterns, though I'm not giving them full weight here because they aren't that well supported by topping patterns on other indices. Nonetheless they are well worth bearing in mind here. 

The first is on Dow, where a sloping H&S formed with an undersized right shoulder but with the right shoulder in the right area and strengthened by the gap under the neckline last week. There is a declining channel on Dow which was pinocchioed last week but has held so far on an hourly closing basis and we could see a bounce here to test channel resistance and retest the neckline. Regardless of whether this H&S plays out to target the broken neckline should be strong resistance on any bounce:
The second H&S is on ES, and this is supported by a matching pattern on SPX. Again the right shoulder is somewhat undersized but it is technically valid. The target is in the 1315 area which would fit with a test of the 100 week moving average on SPX that I was looking at on Friday as the key bull/bear market dividing line here. I have been talking for several weeks about the 1388 level as the level that I would expect a non-sloping H&S to form and we didn't see that, but it was still support on the way down and saw the high on Friday's rally, so short term resistance is there on ES:
On the SPX daily chart the high on Friday was a retest of broken rising wedge support and that again is short term resistance. If we see a bounce that broken support trendline will intersect with declining resistance from the last high by the middle of next week and that would be an obvious target for a bounce from a lower level than we have seen on SPX so far. SPX closed close to the lower bollinger band on Friday and there is no positive RSI divergence on the 60min RSI 14, so there is no strong reason to look for a bounce right here though obviously most indices are very oversold on the 60min charts:
There is a W bottom target on USD in the 81.8 area, and I can see no reason to think that won't be reached. Short term though USD is finding resistance at the May to August M Top valley low and we may well see some retracement short term. The obvious target for that would be rising support just over 80:
That setup is mirrored on EURUSD where there is significant positive divergence on the 60min RSI and the obvious target there would be a retest of broken support at 1.28. That level is the valley low for the M top targeting the 1.244 support area:
CL found some support from equities on Friday and a short term double-bottom played out to target. There may well be a falling wedge forming on CL and if so, the obvious rally target is declining resistance from the September high, currently at 88.75. If that declining resistance should break then there is a much larger potential double-bottom on CL that would target the 94 area on a break over 89.2:
I'm leaning short today unless we see ES break over 1388 with any confidence. On a break over 1388 resistance would be at 1396 at the broken H&S neckline and 1410. Declining resistance on SPX and the daily middle bollinger band are in the 1422 SPX area. Support on ES is at Friday's low at 1363.5. I'm leaning bullish on copper short term here and you can see the chart for that at my weekend post at MarketShadows here

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